Mission Produce Inc
NASDAQ:AVO
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
8.46
14.1
|
| Price Target |
|
We'll email you a reminder when the closing price reaches USD.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Mission Produce Inc
Earnings Call Analysis
Q1-2024 Analysis
Mission Produce Inc
The fiscal first quarter of 2024 saw a significant boost in total revenue, which increased by $45.2 million, a noteworthy 21% year-over-year rise, reaching $258.7 million. The company's strategy to focus on efficient operations and drive per-unit margins benefited from strong performance, particularly in the Marketing & Distribution and blueberry segments, where gross margins swelled by nearly 700 basis points leading to a 69% surge in gross profit dollars compared to the previous year. The notable rise in avocado margins within the Marketing & Distribution segment, alongside record quarterly revenues in blueberries, was instrumental in these results.
Investing in premium blueberry varietals is proving to be a wise move for the company, as these investments are now visibly reflected in the financial outcomes through increased yield opportunities and market differentiation. Blueberries performed exceptionally well, turning strategic decisions into financial success. The company is also building its presence in promising growth markets, exemplified by the advancement of the Forward Distribution Center in the United Kingdom, aimed at strengthening the company's distribution capabilities. An impressive 50% growth in first quarter revenue for the emerging mango program, reaching over $10 million, indicates significant future potential in Western markets, where consumption can still increase substantially.
The company has been focused on optimizing operations, specifically in the International Farming segment, which typically does not contribute significantly until the second half of the fiscal year. Despite the flat revenues in this segment during the first quarter, efforts to cut operating costs have already started to materialize, such as the reduction in unnecessary labor at their Peruvian operations. This detailed approach to cost management is seen as an important factor destined to improve operating performance as the year progresses.
Net cash provided by operating activities showed a powerful swing from a $1.3 million cash use in the same period last year to a $9.5 million cash provision in the first quarter of fiscal 2024. This remarkable change points to the effective management of working capital and stronger pricing dynamics, notably in the avocado segment, which is seen as a robust indicator of rising demand.
Looking ahead, the organization plans to leverage about 450 hectares of existing blueberry production and expects to bring an additional 600 hectares into production over the next 3 to 4 years. This expansion, based in the Northern part of Peru, is projected to initiate harvests a bit earlier than usual which could potentially lead to a growth in production volume and result in improved financial performance, although caution is advised as the previously seen high pricing levels in blueberries might not be sustainable long term.
You don't have any saved screeners yet
Good afternoon, and welcome to the Mission Produce Fiscal First Quarter 2024 Conference Call. [Operator Instructions] Please also note, today's event is being recorded.At this time, I'd like to turn the call over to Jeff Sonnek, Investor Relations at ICR. Sir, please go ahead.
Thank you, and good afternoon. Today's presentation will be hosted by Steve Barnard, Chief Executive Officer; and Bryan Giles, Chief Financial Officer. The comments during today's call and the accompanying presentation contain forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts are considered forward-looking statements. These statements are based on management's current expectations and beliefs as well as a number of assumptions concerning future events.Such forward-looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from the results discussed in the forward-looking statements. Some of these risks and uncertainties are identified and discussed in the company's filings with the SEC. We'll also refer to certain non-GAAP financial measures today. Please refer to the tables included in the earnings release, which can be found on our Investor Relations website, investors.missionproduce.com, for reconciliations of non-GAAP financial measures to their most directly comparable GAAP measures.With that, I'd now like to turn the call over to Steve Barnard, CEO. Steve?
Thank you for joining us today. We're off to a strong start in fiscal 2024, with the delivery of a first quarter that demonstrated solid execution across all facets of our business. Total revenue for the first quarter of fiscal 2024 increased $45.2 million, or 21% year-over-year, to $258.7 million, and adjusted EBITDA increased by $16.9 million to $19.2 million. These results were a direct result of our team's focus, underpinning our strong adjusted EBITDA performance, with significantly improved per-unit margins across the Marketing & Distribution and blueberry segments, which translated to nearly 700 basis points of gross margin expansion and a 69% increase in gross profit dollars versus the prior year period. This improvement was spurred by strength in avocado margins in our Marketing & Distribution segment, as well as the achievement of record quarterly revenues in our blueberry segment.Blueberries are notable this quarter in that the strategy is becoming visible in the financial results. Within this business, we have been investing capital in new premium varietals that not only offer additional yield opportunity to drive higher returns on investment, but are also differentiated in terms of the appearance and flavor profile, which offer retailers and their customer's significant value.Similar to our International Farming segment, we were able to generate higher margins as a result of behaving as an operator, with a greater capital intensity. The blueberry business is providing us with incremental levers to drive per-unit margins at the consolidated level.In an environment such as this, where industry volumes are constrained, we are well positioned to capture the additional margin upside that is created from advantageous pricing.Together, these businesses contributed meaningfully to our overall adjusted EBITDA generation in the first quarter and demonstrates Mission's unique ability to drive value through its leading global market position.Our primary goal is to drive long-term volume growth by supporting our markets with consistent supply, creating an environment to drive per capita consumption growth through greater access.To support opportunities in emerging growth markets such as Europe and Asia, we are methodically building our capabilities in those regions in a measured fashion. In the United Kingdom, the construction of our new Forward Distribution Center is progressing according to plan with our Phase 2 build-out to expand capacity, including additional ripening rooms, storage, and sorting, as well as building handling capacity for our very popular Mango category.While our mango program is still in its infancy, first quarter revenue grew nearly 50% compared to the same period last year to over $10 million. The opportunity ahead is immense. Mangoes are among the most consumed fruit globally, yet in the Western markets it has lagged behind, primarily due to the lack of consistent year-round high-quality sourcing. We are eager to bring some greater execution to this fragmented industry and help drive greater consumption.In fact, we recently reinvested in this business with new leadership that is already generating early wins through improving our third-party sourcing, enhancing our operational capabilities, and meeting the needs of retailers in a more consistent fashion, all of which is translating to growth. We think we are in an ideal position to compete for market share globally, and this focus has immediately yielded new customer engagements and is very complementary of our avocado program from a merchandising perspective.Supporting these strategies are our physical distribution and ripening assets, our expansive third-party sourcing network, and our vertically integrated growing operations in Peru. This allows Mission to provide year-round sourcing to establish markets such as North America, but also strategically penetrate new regions as well. This is a playbook that has served us well over several decades and remains the core tenet of our long-term strategy.Although, our International Farming segment doesn't contribute materially until our fiscal second half of the year, when the harvest commences, we have already started a rigorous optimization process that is intended to drive down our operating costs while ensuring that we maintain the same quality standards that our customers have come to expect.We are encouraged by the progress we are making with this initiative and expect that it will translate to improved operating performance later this fiscal year, although it is still early to provide a reliable forecast of volume from our Peruvian operations, weather conditions have improved as El Niño conditions have dissipated, which should lead to a more predictable harvest for this coming season.We believe that the improved growing conditions combined with enhancements to our operations will create a more constructive backdrop for our International Farming segment performance later this year.In summary, Mission remains in a strong position with a network of global assets to drive growth, a strong balance sheet, and a focused team that is generating enhanced margins and cash flow through thoughtful capital allocation.On that note, I wanted to take a moment and comment on the executive appointment we announced last week. I'm excited to have John Pawlowski join our executive team as President and Chief Operating Officer beginning in April.John is an exceptional leader who brings more than 25 years in the global food and food service industry, driving logistic efficiencies, market access, and strategic partnerships at large global organizations such as J.M. Smucker.John comes to Mission from Lipari Foods, where he was President and CEO for the past 2.5 years. With his comprehensive background in the international food industry, I believe his skill set will greatly contribute to our continued growth as we work to enhance our operating strategies to maximize shareholder value.With that, I'll pass the call over to our CFO, Bryan Giles, for his financial commentary.
Thank you, Steve, and good afternoon to everyone on the call. I'll start with a review of our fiscal first quarter financial performance, touching on some of the key drivers within our 3 reportable segments. Then I'll provide an update on our financial position and conclude with some thoughts on the current industry conditions that we are seeing.Total revenue for the first quarter of fiscal 2024 increased 21% to $258.7 million, driven by higher per unit avocado sales prices. Though, the impact was less significant, we also experienced growth in Mango and Blueberry revenues, resulting from higher average sales prices that were driven by industry supply constraints during the period.Gross profit increased by $19.7 million to $28.7 million in the first quarter, and gross profit margin increased 690 basis points to 11.1% of revenue. These increases were driven by improved per unit margins across our Marketing & Distribution and Blueberry segments.Within Marketing & Distribution, we achieved avocado per unit margins that were near the high end of our typical range. This performance was bolstered by a decision to implement price increases for our value added services heading into this fiscal year to cover the structural inflation that has proven difficult to mitigate. Within Blueberries, we realized a significant margin benefit from higher per unit sales pricing as a result of the advantageous industry conditions.SG&A expense increased $1.6 million, or 8% compared to the same period last year, primarily due to higher employee-related costs, including stock-based compensation expense and performance-based incentive compensation associated with government-mandated profit sharing in our foreign operations, a good portion of which was driven by the strong performance of our Blueberry segment during the quarter. Partially offsetting these costs was a reduction in our general corporate expenses of approximately $1 million, which demonstrates our progress in reducing controllable expenses.While off to a solid start, we anticipate that our expense optimization efforts will be more visible in our International Farming segment gross margin during the second half of the fiscal year.Net income for the first quarter of fiscal 2024 was breakeven, or $0.00 per diluted share, compared to a net loss of $8.8 million, or $0.12 per diluted share, for the same period last year. Adjusted net income for the first quarter of fiscal 2024 was $6.7 million, or $0.09 per diluted share, compared to an adjusted net loss of $5 million, or $0.07 per diluted share, for the same period last year. Adjusted EBITDA increased $16.9 million to $19.2 million, as compared to $2.3 million for the same period last year, driven by the strong gross profit performance noted earlier.Turning now to our segments, our Marketing & Distribution segment net sales increased 24% to $224.6 million for the quarter, due to the favorable avocado pricing dynamics I described earlier. We believe that the meaningful price increase at comparable volumes is a strong indicator of demand growth during the period.Segment-adjusted EBITDA increased $6.4 million to $11 million, due to the impact of higher per unit gross margins, resulting from relatively stable avocado supply conditions in Mexico during the period, and the value-added price increases previously discussed.Our International Farming segment revenues in EBITDA are concentrated in the second half of our fiscal year, in alignment with the Peruvian avocado harvest season, which typically starts in April and runs into September of each year.Activity during our fiscal first quarter is currently focused on packing and processing services for our Blueberry segment, and for third-party producers of Blueberries, though this will evolve over time as our operations develop in other areas of Latin America.With this in mind, total segment sales in the International Farming segment were $5.8 million, approximately flat compared to the same period last year. Segment-adjusted EBITDA increased $1.3 million to a negative $0.5 million, driven primarily by cost-savings measures within our Peruvian farming and packing operations.Activity in our Blueberry segment tends to be concentrated in the first and fourth quarters of our fiscal year, in alignment with the Peruvian blueberry harvest season, which typically runs from July through February.Net sales increased 9% to $32.5 million, and segment-adjusted EBITDA increased $9.2 million to $8.7 million, compared to the same period last year. Industry supply conditions from Peru had a dramatic impact on sales pricing and volume sold during the quarter.In regard to sales growth, we experienced a 90% increase in selling prices that was substantially offset by a 43% decrease in volume sold. EBITDA growth was driven by the significant increase in prices that resulted in substantial improvement in per unit margins.Shifting to our financial position, cash and cash equivalents were $39.9 million as of January 31, 2024, compared to $42.9 million at October 31, 2023. Operating cash flows are seasonal in nature. We typically see increases in working capital during the first half of our fiscal year, as our supply is predominantly sourced from Mexico, under payment terms that are shorter than terms established for other source markets.In addition, we are building our growing crops inventory in our International Farming segment during the first half of the year for ultimate harvest and sale that will occur during the second half of the fiscal year.Net cash provided by operating activities was $9.5 million for the 3 months ended January 31, 2024, compared to cash used in operating activities of $1.3 million for the same period last year. The $10.8 million increase was driven by improved operating performance, partially offset by working capital growth.During the current period, our working capital position was negatively impacted by the higher avocado pricing environment, which had an unfavorable effect on both accounts receivable and inventory balances.Inventory growth in the current year period was also driven by higher blueberry growing crop inventory in Peru, due to the extension of the harvest season compared to prior year.Capital expenditures were $9.9 million for the first quarter ended January 31, 2024, compared to $17.6 million last year. Capital expenditures were balanced across each of our 3 operating segments and were comprised of avocado orchard development, pre-production orchard maintenance, and land improvements in Peru and Guatemala, early stage blueberry plant cultivation in Peru, and construction costs associated with our U.K. distribution facility.As we mentioned on our last call, the year-over-year reduction in capital spending reflects the tapering off of our recent heavy investment cycle in avocados and is at a level we feel comfortable with over the near-term to support our ongoing farming expansion and facility improvement projects.Our projected CapEx budget for fiscal 2024 remains unchanged at $30 million to $35 million. Net, we believe the business is well positioned to generate positive free cash flow in fiscal 2024 and beyond.I want to reiterate that our core capital allocation priority is maintaining a healthy capital structure that minimizes leverage. Debt pay down remains our near-term priority, and given our forecast for improved operating cash flow for the full year of fiscal 2024, we expect to be in position to strengthen our balance sheet by the end of this fiscal year.In terms of our near-term outlook on the fundamental drivers of our operations, we are providing some context around our expectations for industry conditions to help inform your modeling assumptions.Beginning with avocados, industry volumes are expected to be relatively flat in the fiscal 2024 second quarter versus the prior year period. Sourcing from Mexico should taper off in the latter part of the quarter as we near completion of the current harvest season, while California harvest volume should begin to build toward the middle of the quarter as weather permits.Peruvian volumes are unlikely to have a meaningful impact on the market during the quarter. Avocado pricing is expected to be slightly higher on a sequential basis and approximately 10% to 15% higher than the $1.30 per pound average experienced in second quarter of fiscal 2023, assuming that volume aligns with our expectations.Turning to Blueberries, harvest timing shifts relative to last year have extended our Peruvian blueberry season. As a result, we expect that approximately 20% of the harvest will be sold through in the fiscal second quarter, whereas the season was substantially complete in the prior year period.Sales pricing is expected to decline sequentially in the fiscal second quarter in response to increased industry volume resulting from the expectation for other source regions to begin seasonal harvest on a normal cadence That concludes our prepared remarks.Operator, now over to you. Please open the call to Q&A.
[Operator Instructions] Our first question is from Bienvenu with Stephens.
So I want to ask in the marketing business, this balance between, taking market share on the volume side but managing margins on the per box side, how do you feel like you're doing? It looks like you gained, at least relative to the industry data, a little bit of market share on the volume front, and margins are recovering nicely. So, maybe talk us through some of the things that you're doing and expectations as you move forward to perhaps continue to deliver results along the same lines?
Well, I think we're looking at some of our longer-term commitments and making sure we have the right supply-demand balance going forward. Some of the times in the past, we would commit to pricing and the supply would fluctuate surprisingly to us in many cases, so we're trying to tighten that up.As we go forward, we've got that Peruvian deal coming on -- on our own, so that kind of eliminates the high risk there, too. So, I think it's mainly just running a tighter, a shorter leash on the pricing and making sure we know what the supply is at the relevant time.
I would just add to that, Ben, I think that, there's a natural tendency within mission for the team to push share hard. I mean, we've grown the business to what it is today by taking share from competitors year after year. So the natural tendency is to continue to push, push, push. I think, we work together as a team to try to figure out how much risk we want to take on as part of that volume growth and moderate it. I think certainly, we know margin has some variability to it from period-to-period. We benefited from, I think, a market that enabled us to get above average margins during the quarter while achieving that growth at the same time.I feel like it was a good quarter. We achieved what we wanted to. Not every quarter will look like Q1 did, but I think that's kind of a picture of what we want to achieve is build share while at the same time, while maybe not getting the highest margin that's out there, getting a reasonable one that doesn't impede us from continuing to grow.
I think another thing, Ben, is the Mango business continues to grow at a fairly rapid pace. There really isn't any leadership in that space. And one of the benefits Mission has, we utilize our Distribution network. So all of the facilities are showing higher profit levels or more volume through the facilities. The transportation is picking up a benefit there because a lot of times it's going to the same customer on the same truck. So there's a lot of synergies going on, too, apart from the pricing.
Okay. That's great. As we start to think about the back half of this fiscal year and the contribution of the Peru operations, what are your thoughts with respect to the crop, how it's looking, and how this year's performance from the International Farming segment might look relative to last year?
Well, last year we were hit pretty hard, especially at the end with El Niño. A lot of the crop shed on the ground after we estimated it. And then towards the end of the season, we were ending up with fruit not ripening. I know for a fact, we lost several loads due to fruit just wouldn't ripen no matter how long you left it in the ripe room. So it was dumped in many cases. So that appears to be behind us as far as the weather.The sizing on the crop looks to be normal. I was there at the end of January, and it looked to be perfect at the time from what we think of mid-sizes, 40s, 48s, and 60s. The crop is down a little bit. Pricing should be better just due to supply and demand. So we're pretty optimistic about it. Assuming El Niño stays offshore, we'll be good, I think.
Okay. Great. Congratulations on a solid quarter.
Our next question is from Gerry Sweeney with ROTH MKM.
I had a couple questions on margins as well. I apologize, if any of it is repetitive. I was writing stuff down as you were speaking on the last go-around. But I just wanted to talk about, maybe get a little bit more detail on some of the cost enhancements you're making, which I also would include maybe some of the price increases, maybe describe some of the moves you're making, how much is left, and then is there ability, are you caught up on price in regards to the value you're adding to the fruit? So, I think there's a little bit to unpack there. I can repeat some of it if you need to.
Yes, let's just start on the cost. Most of that came out of the Peru operation. We had been in a growth mode for several years. They kind of had that growth mentality and had a lot of people doing lots of things. And we just unofficially went back to a zero-based budget on labor and said, okay, what do we need to get this job done in an efficient, correct manner. And that's really what we did.We had too many people doing 1 person's job in many cases. Because we were developing it and there was lots going on and whatnot, but now we're to the point where we're a little more mature down there as far as our developments, and now it's more of a direct operational team rather than an operational and growth team at the same time.
Yes, and I would reiterate, Gerry, down in Peru, I think what we saw the impact of in the first quarter was some of the cuts we made in SG&A as well as some of the reductions we made in the packinghouse itself. I think the benefits from the farming side, because all those costs are being capitalized into inventory over the course of the year, that's the piece that we'll see later. But we're certainly trending in line with what our internal expectations were.So I think we feel good about the cost reduction initiatives. We can see that the balances in our inventory related to growing crop inventory in Peru are lower, meaningfully lower this year than they were last year at the same point in time. So again, I think as we go to the second half, we've got a lower cost structure in place. We should see stronger pricing based upon what we think the overall industry volume conditions are going to look like, both from Peru and from other source markets during that timing window. So the big question mark will be what the overall production out of our farms look like this year, getting those estimates accurate in terms of overall volume, timing, and sizing, as Steve alluded to.I think up here in the U.S., what we've seen in the marketing side, certainly some emphasis on passing along some of the sticky cost increases that we've seen over the last few years. I think that we -- I don't necessarily think that, there is further increases on the horizon with the value-added services. I think we moved them up to where they need to be. But it's something we'll continue to evaluate as we move forward.
Got it. That's helpful. And then just talking about Blueberries and Mangoes, obviously there's an absorption -- it sounds like they're absorbing some of the fixed costs from distribution, packing, et cetera. How big can you grow these 2 business lines?
Great question. Consumption keeps growing on both of them, Gerry. As you know, we're partners with Driscoll on the Blueberries, and we don't run that through our distribution network here in the United States, but we do run it through our Peruvian facilities. So, we pick up some benefit there as we continue to add hectares on that. That will continue to improve our numbers at the facilities down there.The Mango business is definitely a benefit here in the U.S. as it complements it, it's off-season from some of the Mexican products, so we're using our Laredo facility in the summertime with Mangoes when the avocados are at their low point of the year, and then we're leveraging the rest of the distribution centers across the nation because they're on the same truck going to the same customers, and they're being ripened in the same facilities. So, it's a great benefit in that nature, in that respect.
I'd just build on that, Jerry, that I think -- touch on Mangoes first. Steve is spot on. On the marketing side of the business, the ability to leverage our distribution infrastructure, Mangoes in the U.S. market have been growing at a faster rate than avocados over the last few years, and we believe that the runway on that is still pretty long. So I think, it's a nice complement to our avocado business, which is certainly a little more mature in the U.S. market than Mangoes are today.It's tough to put a number on where we'll ultimately land on that, because it's so early in the process, but we do believe that, there's real potential. We think that the growth rates in Mango revenue will likely outpace the growth rates in our avocado revenues in the near future.I think with Blueberries, to Steve's point, we've got about 450 hectares in the ground today that we're producing fruit. So as we near the end of our -- or kind of reached the end of our current harvest season, that's the volume that contributed or the amount of acreage that contributed. As we've alluded to in our cues and in previous calls, we are expanding up in the Northern part of Peru. There's an additional 600 hectares that we're targeting to plant over the next 3 to 4 years. Those will start layering in, in production in the near-term. We should have some acreage that's coming online from those plantings in this next harvest season, and it will likely even start a little bit earlier than what we've seen historically.Just the harvest window we're seeing up in the north tends to come a little bit earlier. So again, potential for growth from that acreage, we don't necessarily have any plans beyond that in the near-term, but I think one thing to note is that, pricing was certainly at an abnormally high level during the last 2 quarters, and we don't think that that price point, the net returns to the farms, are going to be sustainable for the long term. There definitely were industry constraints in Peru this last year as a result of the same El Niño that impacted our avocado production that really spiked pricing this year.
And one thing on the Mango business, on top of the benefit with volume, Gerry, is that we picked up avocado business at some of these retailers that we did not have their avocado business because we have the mangoes. So, there's a lot of benefits there.
Ladies and gentlemen, at this time, there are no further questions. I'd like to end the question-and-answer session and turn the conference back to management for any closing remarks.
Great. Ladies and gentlemen, this concludes today's conference call, and thank you for your interest in Mission Produce. We look forward to speaking to you again.
This concludes our conference. You may now disconnect.